The Financial Services Authority (FSA) has failed to uncover evidence that HBOS was the victim of deliberate rumours spread by short-sellers to drive down the bank's share price.

The regulator has now started a wider review of how companies' systems and controls deal with rumours.

The FSA opened its investigation March 19 after speculation that the mortgage lender had sought emergency funding from the Bank of England send HBOS's share price plunging 17 per cent.

There was also speculation that Mervyn King, the Governor of the Bank of England, had cancelled his Easter travel plans to deal with a liquidity crisis at HBOS.

HBOS, the Bank of England and the FSA made public statements on March 19 to assure the market that the lender HBOS had not been bailed out, and trading in the stock was halted once at 8.43am in an attempt to halt the fall.

After dropping as low as 398p, HBOS's share price closed down more than 7 per cent at 446p.

The FSA said this morning that it could find no evidence that the rumours were spread as part of a deliverate attempt by investors to profit from falls in the share price.

"There's no doubt that false and damaging rumours were circulating about HBOS on 19 March 2008 and these would have had some impact on HBOS' share price," the regulator said in a report today.

"It is difficult, however, to say how much impact, as the share price was also affected by the interaction of a number of other complex factors on the day."

These factors included a lack of liquidity in the bank's stock and the effect of so-called black box trading strategies that amplified the impact of the initial falls in the share price.

The FSA said, however, that it was following up wider issues that the HBOS investigation had uncovered, including a review of the systems and controls at companies for dealing with rumours.

"We are examining what policies are in place and how firms ensure compliance with them; whether and how rumours are verified; whether traders are permitted to pass on or trade on rumours; and how firms ensure staff do not or initiate or spread false rumours," the regulator said.

"This exercise is covering a range of investment banks, securities firms and hedge fund managers."

The findings will be revealed in the early autumn.

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